Central banks cut interest rates
The UK government has announced a package of measures aimed at rescuing the banking system which could add up to £500bn ($880bn).It will initially make extra capital available to eight of the UK's largest banks and building societies in return for preference shares in them.
It is "designed to put the British banking system on a sounder footing", said Prime Minister Gordon Brown.
But the FTSE 100 in London fell 4% after the measures were unveiled.
HBOS shares rose 52% in early trading but Barclays fell 8% and Standard Chartered dropped 13%.
The key points of the plan are:
Banks will have to increase their capital by at least £25bn and can borrow from the government to do so.
An additional £25bn in extra capital will be available in exchange for preference shares.
£200bn will be available in short-term loans from the Bank of England, up from £100bn.
Up to £250bn in loan guarantees will be available at commercial rates to encourage banks to lend to each other.
To participate in the scheme banks will have to sign up to an FSA agreement on executive pay and dividends.
Falling shares
BBC business editor Robert Peston explained the falls in banking shares.
He said that the huge amount of new capital the banks will have to take on will be expensive and that the message of the rescue plan is that they need it.
"So it may be good news that the Treasury is prepared to shore up their balance sheets, but it's pretty bad news that there's such a big hole to fill," he said.
He argued that HBOS shares had risen strongly because the rescue plan had brought it back from the brink to a greater extent than its peers.
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BANKS SIGNED UP
Abbey
Barclays
HBOS
HSBC
Lloyds TSB
Nationwide Building Society
Royal Bank of Scotland
Standard Chartered
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Parties support plan
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Reaction to the plan
Much of the current crisis has been caused by the banks' unwillingness to lend to each other, so the government hopes that if those loans can be guaranteed then lending will resume.
"This is beginning a process of un-bunging a big problem where banks won't lend to each other for long periods," Mr Darling said.
The lenders that have confirmed their participation in aspects of the scheme are Abbey, Barclays, HBOS, HSBC, Lloyds TSB, Nationwide Building Society, Royal Bank of Scotland and Standard Chartered.
The Treasury said that other banks and building societies would be able to apply for inclusion in the plan.
Preference shares pay a fixed rate of interest instead of a dividend, which has to be paid before other shareholders receive anything, but they do not carry voting rights.
Taxpayers may even end up making a profit from the shares, but that is by no means guaranteed.
Robert Peston said there would be strings attached for banks that take the government money.
"Taking taxpayers' money will not be a licence to trade as normal," he said.
Negotiations will take place with each participating institution that will require them to extend normal credit lines to homeowners and small businesses, in addition to rules on executive pay and dividends to other shareholders.
'Stop the panic'
It is hoped that the deal will get the money markets going again and assure the future of the banking system.
"They've got additional capital now if they want it, they've got an unlimited source of liquidity," said Terry Smith, chief executive of the money brokers, Tullett Prebon.
"That certainly should stop the panic in terms of people wondering whether or not the banks are safe."
The deal has also been welcomed by the banks.
"The government's announcement represents a very real and serious intention on the part of the authorities, following consultation with the banking industry, to bring stability and certainty to the UK banking system," HBOS said in a statement.
Barclays, Lloyds TSB and RBS also issued statements welcoming it.
HSBC, Nationwide and Standard Chartered also welcomed the plan but said they did not intend to take on any new capital at the moment.
